A merchant cash advance (MCA) is a lump-sum payment to a business in exchange for a percentage of the business's future receivables — typically credit card sales or daily bank deposits. Legally, an MCA is not a loan. It is the purchase of future receivables at a discount.
That distinction matters: because MCAs are not loans, they fall outside most state usury caps and outside federal Truth in Lending Act (TILA) APR disclosure requirements in most jurisdictions. That's why MCAs are quoted as a factor rate (e.g., 1.32×) rather than an APR.
How a merchant cash advance works
The funder advances a sum — call it $50,000 — and the merchant agrees to repay a fixed total amount, calculated as the advance × factor rate. At a 1.32 factor, the merchant repays $66,000 total. Repayment happens via daily ACH withdrawal from the merchant's business bank account, typically over 6–18 months.
Two repayment models exist. Fixed daily ACH (the dominant model in 2026) pulls a fixed dollar amount every business day until the total is paid. Holdback / split-funding (older model) takes a percentage of daily card sales — slower in slow months, faster in busy ones — usually via the merchant's payment processor.
Factor rate vs APR: why the comparison is hard
Factor rates look small. A 1.32× factor sounds cheaper than a 32% APR. It's not — it's far more expensive. Here's why: a 1.32 factor on a 9-month MCA equals roughly an 85% APR, because the merchant repays the entire amount over a much shorter horizon than a 32% APR loan would.
Use a factor rate calculator to convert any MCA offer into APR-equivalent before comparing it to bank loans, SBA loans, or lines of credit. The APR equivalent is what tells you the true cost of capital.
Try the free factor rate calculator at /tools/factor-rate-calculator to convert any MCA offer into APR-equivalent.
Who qualifies for an MCA
MCAs are designed for cash-flowing businesses that don't qualify for bank loans. Typical qualification thresholds: 6+ months in business, $10,000+ monthly bank deposits, and no recent bankruptcy. Credit score requirements are loose (550+ FICO is often acceptable). Funders care more about average daily bank balance and deposit consistency than credit score.
- ▸Restaurants, bars, retail, auto repair, salons, gyms — high-volume daily-deposit businesses
- ▸Construction, trucking, contractors — irregular cash flow but strong revenue history
- ▸E-commerce — Amazon FBA, Shopify, online retailers with consistent daily sales
- ▸Medical and dental practices with steady insurance reimbursements
MCA vs SBA loan vs term loan vs LOC
MCA: Speed (24–72 hour funding), loose credit requirements, expensive (60–150% APR equivalent). Best for short-term opportunities and merchants who don't qualify elsewhere.
SBA 7(a): Cheap (Prime + 2.75–4.75%), 10-year amortization on working capital. Slow approval (30–90 days), strong credit and 2+ years in business required.
Term loan (online lender): Middle ground — 15–35% APR, faster than SBA, slower than MCA, requires decent credit.
Line of credit: Best for ongoing working capital needs. Pay interest only on what you draw. Requires bank relationship and strong financials.
Common MCA terms to know
Stacking: Taking multiple MCAs simultaneously. Many funders prohibit stacking in their contracts. Confession of Judgment (COJ): A waiver of the right to defend against a future lawsuit — banned in some states (NY) and a major risk factor for merchants.
ISO / broker: An independent sales organization that sources MCA deals for a funder in exchange for commission (typically 5–15% of the funded amount). Reconciliation: A merchant's right to renegotiate daily ACH if revenue drops materially. Required by ethical funders, frequently denied by predatory ones.
Where to learn more
If you're a merchant evaluating offers: run every offer through a factor rate calculator before signing. If you're an MCA broker building a book: see our buyer pages and case studies for industry-specific outbound playbooks.
The Owner Leads Direct Editorial & Research team writes, reviews and maintains every public page on this site. Drafts are produced collaboratively (including AI-assisted drafting) and reviewed by a human editor with relevant subject-matter experience in MCA, commercial lending, B2B data or compliance before publication. Every quantitative claim is cited to a primary source or labeled as internal Owner Leads Direct data. We publish corrections within 72 hours of a verified report.
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